Thousands of banks failed during the first few years of the Great Depression for a few reasons. Some of the banks recklessly invested depositors' money in the stock market, and when the stock market crashed, the banks were left without cash to operate. Others suffered from the panicking public, where depositors rushed to banks to withdraw all of their money. Since banks operate on a fractional reserve system, the banks could not give all deposited money back and had to close. Fractional banking is the system all banks follow, where only a fraction of deposited money is kept physically at a bank while the rest is made available for loans and investment.
Why did the author of this graph include information for 1920 and 1925?
What caused the large drop from 1933 to 1934?
Why might the failure rate have been so low in 1935, compared to 1920 and 1925?
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